Dominic Younger’s Monthly Market Snapshot: January

Risk appetite was weak at the start of December as AI-related stocks continued to sell off amid concerns over stretched valuations and excessive capital spending. However, the mood turned more positive as the month progressed and the Federal Reserve reduced US interest rates again. The Bank of England (BoE) also cut rates, which was a further tailwind for UK equities.

On the domestic front, UK economic data remained lacklustre: GDP growth unexpectedly turned negative in October, while unemployment for the same month rose to its highest level in over four years. Meanwhile, there was some relatively good news on the inflation front, with annual consumer price rises easing to 3.2% in November per the Office for National Statistics, well below forecasts, having spent the past five months nearer to 4%. A day later, the BoE cut rates by 25 basis points, as expected, but warned that further cuts would be “a closer call”.

By sector, materials comfortably led the FTSE All-Share, helped by the strength in mining stocks as copper and gold prices hit record highs. Financials and industrials also posted strong returns and outperformed the wider index. At the other end, energy was weakest, falling over the month alongside oil prices. Consumer staples was another notable laggard.

Performance

During the month, the Trust returned 1.9%, underperforming the FTSE All-Share return of 2.2%.

At the stock level, SSP Group and OSB Group were leading positive contributors to performance. Food concessions operator SSP’s shares jumped 36% following the release of its full-year results. While the firm posted a pre-tax loss for the full year, the results also showed signs of strength in the second half, including increased revenue and earnings per share. Investors responded positively to SSP announcing a review of its continental Europe rail business, which has recently weighed on performance.

Shares of specialist lender OSB rose 11% on a combination of a supportive announcement on capital requirements from the BoE as well as a broad-based boost to sentiment around UK banks following the Autumn Budget towards the end of November.

The underweight to the oil sector also contributed positively. The shares declined alongside oil prices. Concerns about the sustainability of share buybacks also weighed on the sector.

In terms of detractors, the absence of HSBC notably weighed on performance relative to the benchmark. As well as being boosted by relief that UK banks will avoid additional levies on profits following the Autumn Budget, the stock was supported in December by broker upgrades and progress in the company’s plans to take Hong Kong subsidiary Hang Seng Bank private. News that major UK lenders had passed BoE stress tests and a subsequent commitment from the central bank to reduce capital requirements for UK banks in 2027 provided further support.

Trading activity in the month was elevated to reflect the transition of the portfolio management responsibilities to Dominic Younger, who succeeds Julian Cane after an outstanding 28 years overseeing the Trust’s portfolio.

Key new positions included tobacco company Imperial Brands, Asian-focused bank Standard Chartered, industrial engineers IMI and Smiths Group, as well as domestic names Marks & Spencer and construction services group Morgan Sindall. We also initiated positions in Croda and Diageo, and built up the weighting in selected names, such as pest control firm Rentokil and pharmaceutical company GSK.

These positions were funded by recycling a portion of the Trust’s outstanding returns from specialist lender OSB, as well as from reducing holdings in Intermediate Capital, RELX, Experian, Intertek and Vistry.

Trading activity has been centred around repositioning the construction of the portfolio towards a more value / contrarian stance, in line with the longstanding DNA of our leading UK Equity Income franchise at Columbia Threadneedle Investments. That said, a clear majority of existing portfolio holdings remain part of our plans and importantly there will be no change to the Trust’s core investment objectives or our commitment to extending the ‘Dividend Hero’ status built on 32 years of dividend growth since the Trust’s launch.

Outlook

The UK market is becoming a more attractive place to invest. While concerns around government debt and inflation persist, robust corporate earnings and large-cap focused investor demand have supported strong returns. This performance underscores why UK equities deserve a place in any well-diversified portfolio.

The US exceptionalism trade was challenged in 2025, while the UK market outperformed. There are also signs that the long-term structural sales of UK equities by major asset allocators are now ending.

On the domestic front, following the Autumn Budget in November, some fiscal issues appear to have been kicked down the road in the UK, with lot of the fiscal “pain” deferred to later a later date. However, the increase in fiscal headroom brought some comfort: the deficit is expected to shrink, even if the level of debt as a proportion of GDP will remain elevated. Growth forecasts from the Office for Budget Responsibility, meanwhile, were downgraded less than expected. Ultimately, Chancellor Reeves has navigated this budget as well as could be hoped: the market response was benign, and the long and variable lags of easing monetary policy should start to percolate through the economy. Borrowing costs are edging down, consumer and corporate balance sheets are in rude health, and the multiplier effect from any substantial rebound in housing and construction activity could yet underpin a consumer-led recovery.   

Internationally, the UK market continues to provide an underappreciated access point into global commerce, sourcing 75% of revenues from overseas. Despite strong outperformance in 2025, these international businesses, together with the deeply unloved domestic-facing segment of the market, remain attractively valued relative to history and to international peers. We therefore expect UK companies to remain attractive targets for overseas takeover and private-equity bids.

As events unfold in 2026, our focus will remain resolutely on long-term ownership and quality stewardship. As patient conviction investors, we will continue to avoid whipsaw momentum trades and concentrate on company fundamentals to target strong risk-adjusted returns for the Trust.

As at 31 December 2025